Estée Lauder Companies (ELC) said that net sales declined 10 per cent to $3.6 billion on a reported basis in the third quarter, beating analyst expectations and sending shares up 3 per cent ahead of market close on Thursday.
“In the third quarter of fiscal 2025, we delivered our organic sales outlook and exceeded profitability expectations,” CEO Stéphane de la Faverie, overseeing his first full fiscal quarter as chief executive, said in a statement. “We are moving decisively and building momentum as we bring our ‘Beauty Reimagined’ strategic vision to life. This is evidenced by our prestige beauty share gains in strategic markets like the US, China and Japan and our mid-single-digit organic net sales growth online.”
It’s too soon to tell if the first quarter’s better-than-expected results under the newly appointed CEO indicate the start of the beauty conglomerate’s turnaround, given the ongoing tariffs turmoil and weakened consumer sentiment. Still, de la Faverie, who joined in January, is bullish given brands like The Ordinary and Bumble and Bumble gained market share (excluding travel retail) in the US, China, Japan and emerging markets like Southeast Asia, he said on the investors call. “With the strategic reset of our travel retail business well underway to better reflect recent industry trends and market conditions, and provided there is a meaningful resolution to the recently enacted tariffs to mitigate potential related negative impacts, we are confident in our ability to return to sales growth in fiscal 2026,” de la Faverie said.
By category, skincare decreased 12 per cent on a reported basis to $1.8 billion, primarily due to declines in ELC’s Asia travel retail business, as well as slowing sales growth for the Estée Lauder and La Mer brands. Ongoing subdued customer sentiment in China also contributed to the category’s decline, but were partially offset by lower costs of sales.
Fragrance — a cash cow category for beauty at the moment — saw net sales total $557 million, down 3 per cent year-on-year, largely thanks to a softer performance in Asia. Some category bright spots were led by the group’s luxury portfolio (such as Le Labo, Jo Malone London and Tom Ford Beauty) as the company reported a low-single-digit increase from the segment. Le Labo’s strong performance, driven by hero products including its Classic Collection and perfumes Osmanthus 19 and Eucalyptus 20, drove double-digit growth. But Jo Malone London, another star brand for ELC, saw declines in the cologne and home fragrance subcategories, driven in part by shipment timings.
Haircare (made up of brands like Aveda and Bumble and Bumble) net sales were down 12 per cent on a reported basis to $126 million. Continued performance softness was led by Aveda in salons and free-standing stores. Yet, the beauty giant is hopeful the category is turning around, given that results had improved from the previous quarter. Makeup net sales decreased 9 per cent to $1 billion in Q3. Mac Cosmetics continues to face headwinds, slowing down the category. In the period January to March, the company reported that the makeup brand faced “an unfavourable impact from the timing and lower level of shipment for new product launches compared to the prior-year period”. The same shipment struggle was drawn for Estée Lauder, driven by the decline in the face subcategory, offsetting the success of its Double Wear Stay-in-Place 24-Hour concealer, launched in February 2025.
By region, net sales decreased 6 per cent in the US to $1 billion, down from $1.1 billion in Q3 2024, due to a mid-single-digit decline in North America and an ongoing retail softness and operational challenges impacting department store retailers and getting product to shelves. Despite the drag in department stores, de la Faverie was confident in its brand performance on growing retail channels such as Amazon and TikTok Shop as the platforms prove to be “best-in-class for consumer coverage”, he said.
The CEO highlighted The Ordinary’s launch on US Amazon and UK TikTok Shop as ongoing successes, with more brands expected to enroll in the future. The retail platforms play for ELC resulted in organic sales growing mid-single digits, driven by pure play and third-party platforms, he noted. ELC’s travel retail business is still a struggle, declining 28 per cent organically, but ELC’s CEO is determined that his strategic reset will return the sector to sales growth in fiscal 2026, “provided there are meaningful resolutions to mitigate the negative impact of tariffs”.
Europe, the Middle East and Africa (EMEA) net sales declined 18 per cent to $1.3 billion, thanks to muted sentiment and lower conversion from Chinese consumers and a mid-single-digit decline in the region’s market, led by the UK and retail softness. De la Faverie said the group would be focused on the region over the next few months to prompt growth once again.
As for Asia-Pacific, net sales decreased 3 per cent to $1.1 billion, with double-digit declines in Hong Kong SAR and South Korea. The slowdown in Korea was due to the impact of political and social unrest, reducing retail traffic, as well as the exit of Dr Jart+ from the travel retail channel in the region during November 2024. ELC said it was starting to see green shoots in Mainland China. This was down to heightened shopping activity surrounding the Lunar New Year and Valentine’s Day, as well as a slight recapture of consumer demand from Asia travel retail and online growth, and the regional market success from its luxury brand launch of La Mer’s Night Recovery Concentrate. Persistent retail softness and subdued consumer sentiment are still a concern.
Tariff tensions
Tariffs remain top of mind. “Our supply chain footprints afford us decision making flexibility and we’ve been working on an evolving strategy since last November on how best to leverage our existing regional capabilities under multiple scenarios to partially cushion the direct impact of tariffs on profitability,” said CFO Akhil Shrivastava. “We’ve already increased North America’s production of US demand from its already high level and we also accelerated plans to increase volume levels at our relatively new manufacturing facility in Japan to service our business in Asia-Pacific.”
From a product sourcing perspective, de la Faverie is confident the group is well positioned to mitigate tariff hikes from a finished goods standpoint. “We are confident that by the end of the fiscal year, we will be able to be [at] around 10 per cent [of finished product sourcing] from the US to China, and this will come from our ability to accelerate the output from our newly opened factory in Japan. When it comes to the US, the majority of our finished product — 25 per cent — comes from Europe. But we do have a certain number of things that we need to work from a component and raw material standpoint to strengthen resilience,” he said.
The executive didn’t specify the exact percentage of finished goods sourced from China to the US, stating that it is “very minimal”, but is in a position (given the nine global manufacturing facilities) to mitigate the best it can. De la Faverie and Shrivastava both said on the investors’ call that future sales (and the progression of the Beauty Reimagined strategy) will be subject to the ongoing tariff challenges.
Looking ahead to 2026, de la Faverie is optimistic even though he forecasts a bigger-than-expected sales drop in its 2025 annual sales. “We see all over the world the desirability of our brand being very strong in China, in the US, in Japan, in many markets. We know that we have some progress to make, like in the UK and in many of our emerging markets, and we are laser focused on what we are learning and what is working to take some of the recipes and apply them everywhere around the world,” he concluded.
Comments, questions or feedback? Email us at feedback@voguebusiness.com.
